Can Redbox beat Netflix by snubbing Warner Brothers 56-day plan?

As announced by the Los Angeles Times earlier today, Coinstar’s popular Redbox brand has made a decision to ignore Warner Brothers recently announced 56-day plan that would restrict when a consumer has access to renting a new release on DVD or Blu-ray through the popular red kiosks. Company officials at Redbox have decided to purchase all new Warner Brothers releases in bulk through retailers like Amazon, Target and Wal-Mart, but at a higher cost than the company would pay directly through the studio. While the extra cost could cause Redbox to raise prices from the standard rate of $1.20 a night per DVD, they would have a strategic advantage over rival Netflix.

Netflix agreed to Warner Brothers new release window last month in exchange for continuing to get the discounted rate on new releases. If the Netflix consumer has to wait for eight weeks to get access to upcoming WB movies like A Very Harold & Kumar 3D Christmas, J. Edgar and Happy Feet 2, they may cancel the Netflix rental service completely. Also included in the Netflix deal, the company has to restrict subscribers from adding new Warner Brothers movies to their rental queues until 28 days after the DVD and Blu-ray have been released. This means the Netflix subscriber has to wait 28 days to gain access to a working “Add to queue” button and an additional 28 days beyond that point to actually receive the disc.

According to Warner Brothers executives, removing the presence of the title from the Netflix service for 28 days will reduce the number of people who simply wait for Netflix to gain access to the disc, thus increasing DVD and Blu-ray sales. Mark Horak, president of Warner Home Video North America, believes this strategy will “improve the value of ownership for the consumer.” However, it’s unlikely that Netflix can afford to continue with the 56-day agreement if anyone can go to a Redbox to pick up the latest Warner Brothers movie. Netflix officials may attempt to alter the terms of the agreement to vastly reduce the cost of eight-week old movies even more or simply copy Redbox’s strategy of purchasing titles from third-party vendors.

While Redbox plans to obtain Warner Brother movies from “alternate means” according to vice president of marketing Gary Cohen, a Warner Brother spokesperson stated “The consumer is best served by a windowing and pricing structure that ensures a healthy film business continuing to deliver quality movies. We hope to continue discussions with Redbox and reach a mutually agreed upon solution to this situation, but we fully intend to do what is best for our business, our consumers and the industry as a whole.“

Warner Brother’s position is extremely vulnerable at this point if Redbox and Blockbuster continue to ignore the 56-day plan. It’s possible the movie studio will attempt to backtrack to the 28-day release window. While movie studios may have been adamant to adopt a similar release schedule after Netflix agreed to the new plan three weeks ago, it’s unlikely that studios are ready to push a new version of the structured release schedule without all the major rental companies on board.

In addition, increasing the amount of restrictions regarding when a consumer can have access to a rental price on a film is likely to increase piracy of new releases. When a movie is released on DVD and Blu-ray, the film appears on peer-to-peer file-sharing services on the same day with minimal difference in quality. In addition, consumers aren’t forced to watch advertisements or movie trailers with the pirated version of the film, thus increasing the value of the digital copy over the physical version.